Outsource IT in the Mid-Market: The Ultimate Managed Service

Where’s the money to be found by IT solution providers in this Great Recession? I’ll tell you what I’m seeing, it’s a takeover. A takeover of midsize companies’ IT departments by savvy solution providers. Now this isn’t a hostile takeover by any means. And this isn’t a new strategy either. Here are the details.

Perot Systems first

Where’s the money to be found by IT solution providers in this Great Recession? I’ll tell you what I’m seeing, it’s a takeover. A takeover of midsize companies’ IT departments by savvy solution providers. Now this isn’t a hostile takeover by any means. And this isn’t a new strategy either. Here are the details.

Perot Systems first made the Outsource IT play back in the 60’s, and found that it could save its clients upwards of 50% of their IT budget, and now I’m seeing successful IT companies like mine grow quickly and profitably by pursuing this business plan.

The Best Candidate

The perfect candidate to outsource is a midsize company, with their own IT department of 5+ people. Those folks cost big money; they are paying their salary, their vacation time, their benefits, their certification training, and more. They are also constantly buying software, workstations, servers, routers, and other IT equipment using their own source and trying to keep up with the latest IT trends, products, and services. Wouldn’t they like someone to come in and take care of all those headaches? Wouldn’t they rather have a regular, budget-friendly monthly expense than the rollercoaster of expenditures that don’t ever seem to stop?

That’s where you, the IT Solution Provider, enters with a plan that is a win-win for the client and your business. As the Outsource company, you swoop in and hire all their IT staff with a 90 day agreement. You keep the IT staff that you need, their best workers, and you get rid of the rest. You have assessed their IT needs and made a recommended course of action, including putting as much of their infrastructure as you can into the cloud. You do as much remote work as possible, and streamline and automate their IT workflow.

The result is a healthy, steady revenue stream and additional qualified IT staff for yourself, and made your client’s business instantly more profitable. Plus, they can now put more focus and mental bandwidth where it’s needed most: their business. Outsource IT, it’s the ultimate managed service.

And talk about sticky! You will have agreements for standard managed services like helpdesk, antivirus, Exchange and any permanent onsite staffing. If you’re smart, you’ll also have other agreements for VOIP, managed print services, and maybe even HaaS.

What about you? Have you followed the Outsource IT trend?

David Bellini is president of ConnectWise. Monthly guest blogs such as this one are part of MSPmentor’s annual platinum sponsor program. Read all of Bellini’s guest blogs here.

10 comments

Are most successful deals we have signed are targeted at this exact market. 4 to 8 IT team members which means they are big enough to have their team members be specialist (expensive) and need enough team members for redundancy.

In our experience the trick is setting the right expectations with the client about roles amp; responsibilities and keep that open communication through the transition.

This was a frequent topic with a few other MSPs at the Kaseya Conference that were coming across these deals. Especially since these types of deals can be in the $20K – $40K MRR range.

The mid market clients in our space are looking for the ‘total package’ of IT support, similar to the typical MSP deals however these larger deals tend to have more focus (time required) on strategic planning and capital budgeting. Total package for us includes managing all the devices on the network including routers, switches, servers, storage, PCs, PDAs, IP Phones, and printers. They want to forget about IT and focus on their core business.

We like to be in the drivers seat and participate in the IT Steering Committee Meetings and Board Meetings. Those are both beneficial because we’re at the decision table but also time consuming. A delicate balance because you can get pulled in. That’s where you need your ‘fences’ on your services.

David, Good article and you are spot on with the opportunities that are being presented to the VAR base from IT operations outsourcing perspective – the implications from revenue potential and sticky customers relationship is tremendous.

Having been in this services business for nearly a decade and interacted with the biggest firms like IBM-GS to a lot of off-shore outsourcing behemoths like Infosys, Wipro, HCL as well as all sizes of VARs across North America, I see changing trends in the outsourcing model. Outsourcing of IT in its traditional sense – swoop in, hire all of clients IT team, keep the best, fire the rest, signing a 4 year or 10 year iron clad contract model works great for Fortune 500, in fact even that is showing the signs of failure which was indicative by HP currently in the midst of laying of 9000 people as per WallStreet article recently published.

What we see is that the SMEs( sub $1B in annual revenues) and SMBs (sub $10M in annual revenues and branches of larger enterprises) need a different model and approach. We call that “functional sourcing”. VARs/SIs could easily become fractional CIOs and technology amp; operations confidants to their client base. These VARs who have very broad perspectives and IT wisdom and know how and the fact that they are technocrats, are in the best position to understand their end clients’ business needs and help them better align the IT leverage – from infrastructure needs (VOIP to selling a server or getting them ramped onto a highly overcast set of cloud offerings :-)) to strategic and tactical IT operational needs.

All these services could be provided by co-existing with end client’s IT team as well as leveraging eco system of partners from tools and services standpoint. But the key is “functional sourcing” or “IT as A Service” and rendering those services in a cost effective and flexible manner that makes the best business sense for the end client!

This is our model and works well. The biggest stumbling block is the change in mindset from leadership and IT staff on the client side and merge and mixture of current provider staff and client staff that come on board. If the staff does not feel comfortable or feels threatened it becomes a challenge. We completed a multi year multi million dollar contract and hired 3 new key IT resources as part of our group on this one transaction. The negotiations take a while and once completed is an outstanding play for both the provider and the client. Keep replacing!!!!!!!!

connectIT just posted a story online “Nearly two-thirds of IT infrastructure expected to be outsourced by 2020” with some interesting stats on expected outsourcing in the US, the UK, and Singapore. Opportunity is knocking…

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